Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) both trade at near 52-week lows. They have been taken down by large writes-offs in their mortgage portfolios. Now the question is whether they will have to raise billions of dollars in capital the way that firms like Citigroup (NYSE: C) have.
Putting money into the companies would benefit the housing and financial markets. According to The Wall Street Journal: "Of course, raising that much fresh capital could have benefits if it allows the companies to continue acting as a backstop for the troubled housing market."
But investors owning common stock may not come off as well. Freddie Mac has a market cap of $12 billion. If the company has to raise $10 billion to offset losses, shares could drop from their current level of just over $20 to under $12. If the mortgage markets get much worse going into the second half of the year, there is not guarantee that they won't have to go back to the markets again.
With a $22 billion market cap, Fannie Mae is a bit better off.
With both stocks already down around 70%, the market can't be thinking that the news ahead is good.
Douglas A. McIntyre is an editor at 247wallst.com.
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